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Massive Target breach could have lasting effects

By ANNE D'INNOCENZIO AND MICHELLE CHAPMAN AP Business Writer

Updated:
01/10/2014 07:33:02 PM EST

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FILE - In this Dec. 19, 2013, file photo, a passer-by walks near an entrance to a Target retail store in Watertown, Mass. Target says that personal information including phone numbers and email and mailing addresses was stolen from as many as 70 million customers in its pre-Christmas data breach. That was substantially more customers than Target had previously said were affected.

NEW YORK—Fallout from Target's pre-Christmas security breach is likely to affect the company's sales and profits well into the new year.

The company disclosed on Friday that the massive data theft was significantly more extensive and affected millions more shoppers than the company reported in December. As a result of the breach, millions of Target customers have become vulnerable to identity theft, experts say.

The nation's second largest discounter said hackers stole personal information—including names, phone numbers as well as email and mailing addresses—from as many as 70 million customers as part of a data breach it discovered last month.

Target announced on Dec. 19 that some 40 million credit and debit card accounts had been affected by a data breach that happened between Nov. 27 and Dec. 15—just as the holiday shopping season was getting into gear.

As part of that announcement, the company said customers' names, credit and debit card numbers, card expiration dates, debit-card PINs and the embedded code on the magnetic strip on the back of cards had been stolen.

According to new information gleaned from its investigation with the Secret Service and the Department of Justice, Target said Friday that criminals also took non-credit card related data for some 70 million individuals. This is information Target obtained from customers who, among other things, used a call center and offered their phone number or shopped online and provided an email address.

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Some overlap exists between the 70 million individuals and the 40 million compromised credit and debit accounts, the company said.

The revelations mean more than 70 million people may have had their data stolen. And when the company releases a final tally, the theft could become the largest data breach on record for a retailer, surpassing an incident uncovered in 2007 that saw more than 90 million records pilfered from TJX Cos. Inc.

The latest developments come as Target said that just this week it was starting to see sales recover from the crisis. The company, however, cut its earnings outlook for the quarter that covers the crucial holiday season and warned that sales would be down for the period.

But with the latest news, some analysts believe the breach could be a financial drag on the company for several more quarters.

"This is going to linger like a black cloud over the company's financials for the first half of the year," said Brian S. Sozzi, CEO & chief equities strategist at Belus Capital Advisors.

Meanwhile, the Attorney General from New York announced that it is participating in an investigation into the security breach. Attorney General Eric T. Schneiderman called the latest news "deeply troubling."

Molly Snyder, a Target spokeswoman, told The Associated Press that the company had no new details to share about how the data breach was executed. The company has only said that the point-of sale system in its U.S. stores was compromised.

"I know that it is frustrating for our guests to learn that this information was taken and we are truly sorry they are having to endure this," said Gregg Steinhafel, Target chairman, president and CEO, in a statement.

Target investors have been largely unmoved by the company's disclosures. Target's stock, while volatile, has traded at about $63 since news of the breach leaked on Dec. 18. It slipped just 72 cents, or more than 1 percent, to $62.62 in trading Friday.

But some observers believe the stock could get battered if consumers stay away from Target stores. Several Wall Street analysts downgraded their earnings forecasts for the retailer on Friday.

Colleen McCarthy, 26, of Cleveland, Ohio, is among those who are avoiding Target. McCarthy used her Chase debit card at a local Target on the Friday after Thanksgiving and received a notice from Chase a few days after news of the breach first broke. The letter identified her as a potential victim of the Target breach but said, "don't worry." At the time, she was only somewhat concerned.

But Monday night McCarthy received a call from Chase, alerting her that someone tried to use her debit account twice in Michigan. The thief cleared $150, which caused her rent check to bounce. Chase restored the money to her account. "This has been a nightmare," she said. "My rent check bounced. My debit card had to be canceled. And who's to say what other people have access to my information?"

Target tried to woo scared shoppers back to stores on the last weekend before Christmas with a 10 percent discount on nearly everything in its stores. Target is also offering a year of free credit monitoring and identity theft protection to customers that shopped at its stores.

Still, some experts believe the company should do more.

"Target is in a critical situation with consumers because its credibility and brand loyalty are being questioned," said David E. Johnson, CEO of Strategic Vision, LLC, which specializes in crisis communications. "Right now, investors think Target can weather the storm. But the longer it gets worse, the worse it is for Target."

Johnson says Target needs to rebuild shoppers' trust. He believes Target needs to air TV commercials assuring them that it's safe to shop in its stores. It also should offer more incentives like deeper discounts to woo consumers, Johnson said.

Clearly, Target shoppers were scared off during the holiday season, when stores can make roughly 20 percent to 40 percent of their annual revenue.

The Minneapolis company also said that it now foresees fourth-quarter sales at stores open at least a year will be down about 2.5 percent. It previously predicted those sales would be about flat.

This figure is a closely-watched indicator of a retailer's health.

Target cautioned that its fourth-quarter financials may include charges related to the data breach. The chain said the costs tied to the breach may have a material adverse effect on its quarterly results as well as future periods.

The company has 1,921 stores, with 1,797 locations in the U.S. and 124 in Canada.

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AP Business Writer Bree Fowler in New York contributed to this report.